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Risk-Reward Ratio

Risk Managementbeginner
Updated 1/15/2024

Definition

The risk-reward ratio compares the potential profit of a trade to its potential loss. A 1:2 ratio means you risk $1 to potentially make $2. Professional traders typically aim for ratios of 1:2 or better.

Example

If you risk 50 pips with a stop loss and target 100 pips profit with take profit, your risk-reward ratio is 1:2.

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Tags

#risk-management#ratios#strategy
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